Sarin Technology worries over impact of rupee depreciation on earnings

Profits predicted to crash 57% qoq.

The impact of the rupee depreciation was the key concern voiced during the lunch CIMB hosted for Sarin Tech and institutional investors on 13 Sep. 

CIMB notes that in its 2Q13 results announcement, the company had already flagged it as a reason why 3Q13 may be weaker qoq.

Here's more from CIMB:

We hosted a Sarin Tech luncheon on 13 Sep, during which management explained its new recurring revenue model, the potential of its new products (launched and those in the pipeline) and its move to develop new  revenue sources in the retail end of the diamond value chain which commands the best margins.

Management highlighted that less than 5% of its sales were denominated in rupee and these revenues offset its operating costs in India.

The real impact was the lack of credit or tighter credit for Indian manufacturers as a result of the country’s currency woes. Over the longer term, management plans to penetrate the retail end of the
diamond value chain to lower its sales dependence on India.

What We Think
Demand remains robust, with better economic data from the US, China and Japan. Management had flagged the issue of the weak rupee and bank credit tightening in India in its 2Q13 results announcement.

Management also warned that it expects some negative impact on the 3Q13 results though not as severe as in 3Q12. We expect a 2H13 net profit of US$7.1m or roughly US$3.55m per quarter, which is an approximation due to the seasonality effect in 4Q.

This translates into a potential 57% qoq decline in profit though on yoy basis, it would still show 42% growth.